Victoria’s Vacant Residential Land Tax (VRLT) was designed to unlock empty homes and boost housing supply during an acute housing crisis. However, recent data reveals a gap between the tax’s intended reach and its actual enforcement, with thousands of property owners successfully avoiding millions in tax obligations through various legal and practical loopholes.
The Scale of the Problem
The State Revenue Office’s latest figures paint a stark picture of tax avoidance on an industrial scale. In 2024, only 1,779 properties were assessed for VRLT, falling dramatically short of the Parliamentary Budget Office’s estimate that 5,000 properties should have been liable [1]. This represents a compliance rate of just 35.6%, leaving an estimated 3,221 properties untaxed and costing the Victorian government approximately $34 million in lost revenue.
The financial impact is substantial. While the government collected $20 million in VRLT revenue in 2024—nearly double the $11.3 million collected in 2023—this figure pales in comparison to what should have been collected. Based on the average VRLT bill of $11,000 per property, the missing revenue from non-compliant properties represents a significant shortfall that could have funded substantial housing initiatives or infrastructure projects.
This enforcement gap becomes even more concerning when considering the broader context of Victoria’s housing crisis. With rental vacancy rates at historic lows and housing affordability reaching crisis levels, every empty home that remains off the market represents a missed opportunity to provide shelter for Victorian families in need.
Understanding the VRLT Rate Structure
The VRLT operates on a progressive rate structure that was significantly reformed in 2025, moving away from the previous flat rate system to create stronger incentives for property owners to bring vacant homes to market. Understanding this rate structure is crucial to comprehending both the tax’s intended impact and the financial motivations driving avoidance strategies.
The Progressive Rate System
From January 1, 2025, VRLT applies a progressive rate based on the number of consecutive years a property remains vacant:
- First year of vacancy: 1% of the property’s Capital Improved Value (CIV)
- Second consecutive year: 2% of CIV
- Third consecutive year and beyond: 3% of CIV
This progressive structure represents a significant departure from the previous flat rate of 1% that applied from 2018 to 2024. The escalating rates are designed to create mounting financial pressure on property owners who persistently leave homes empty, making it increasingly expensive to maintain vacant properties over time.
Calculating the Financial Impact
The CIV, which appears on council rate notices, represents the combined value of land, buildings, and capital improvements as determined through the general valuation process [2]. For a typical inner-Melbourne property valued at $1 million, the annual VRLT liability would be:
- Year 1: $10,000 (1% of $1,000,000)
- Year 2: $20,000 (2% of $1,000,000)
- Year 3+: $30,000 (3% of $1,000,000)
Over a three-year period, this represents a cumulative tax burden of $60,000, creating a substantial financial incentive to either sell or rent the property. For higher-value properties, particularly in premium suburbs like Toorak or South Yarra, the annual tax burden can reach six figures, making long-term vacancy financially prohibitive for most property owners.
Geographic Expansion and Scope
The 2025 reforms also dramatically expanded VRLT’s geographic reach. Previously confined to 16 inner and middle Melbourne council areas including Melbourne, Port Phillip, Stonnington, and Yarra, the tax now applies statewide to any residential property in Victoria [3]. This expansion potentially brings thousands of additional properties into the VRLT net, including holiday homes in coastal areas and investment properties in regional centers.
From 2026, the scope will expand further to include undeveloped residential land in metropolitan Melbourne that has remained vacant for five years or more, targeting land banking practices that contribute to housing supply constraints.
The Avoidance Playbook: How Property Owners Dodge VRLT
The significant gap between estimated liable properties and actual assessments reveals a sophisticated ecosystem of avoidance strategies that property owners and their advisors have developed. These methods range from legitimate exemptions to exploitation of enforcement weaknesses, creating multiple pathways for avoiding VRLT obligations.
The Self-Reporting Loophole
Perhaps the most fundamental weakness in the VRLT system is its reliance on self-reporting. Unlike other taxes where government agencies have independent means of verification, VRLT depends almost entirely on property owners voluntarily disclosing their vacancy status. This creates an honour system that is inherently vulnerable to non-compliance.
Property owners are required to notify the State Revenue Office by January 15 each year if their property was vacant for more than six months in the preceding calendar year. However, there is no systematic cross-checking mechanism to verify these declarations against actual occupancy patterns. The government lacks a central register of vacant properties, making it extremely difficult to identify non-compliant property owners proactively.
Grattan Institute economist Brendan Coates highlighted this fundamental enforcement challenge, noting that “it is an inherently difficult tax to police, so I am not surprised if it is bringing less revenue than expected… it is not like there is a central register of vacant properties” [4]. This enforcement gap creates a low-risk environment for non-compliance, where the probability of detection remains minimal.
Strategic Use of Exemptions
The VRLT legislation includes numerous exemptions designed to prevent unfair taxation of legitimate property activities. However, these exemptions have become vehicles for sophisticated avoidance strategies that push the boundaries of their intended purpose.
The Change of Ownership Exemption
One of the most commonly exploited exemptions involves the change of ownership provision. Properties that change ownership during a calendar year are automatically exempt from VRLT in the following year, regardless of their subsequent vacancy status [5]. This has created opportunities for strategic property transfers that reset the VRLT clock.
Some property investors have reportedly structured transactions to take advantage of this exemption, including transfers between related entities, family trusts, or corporate structures. While these transfers must be genuine changes of ownership, the exemption can effectively provide a one-year VRLT holiday that savvy investors factor into their property strategies.
The New Residential Land Exemption
The exemption for newly constructed residential properties has become another avenue for avoidance, particularly among developers and investors in new apartment complexes. Properties that become residential land during a calendar year are exempt from VRLT in the following year, with extended exemptions available for up to three years under certain circumstances.
From 2025, this exemption was extended to allow a maximum exemption period of three years, provided the land was not used or occupied, did not change ownership, and the owner made “genuine and reasonable efforts” to sell the land at or below expected prices [6]. This subjective standard creates opportunities for property owners to argue that market conditions prevented sales, effectively extending their exemption period.
After the three-year exemption period expires, properties that remain unsold are subject to a concessionary rate of just 1% of CIV, significantly lower than the standard progressive rates. This creates a pathway for developers to maintain long-term vacancy at reduced tax rates, undermining the policy’s intent to encourage rapid occupancy of new housing stock.
The Holiday Home Exemption
The holiday home exemption requires owners to use their property for at least four weeks per year and maintain a principal place of residence in Australia. However, the verification of this usage requirement relies heavily on self-declaration, creating opportunities for abuse.
From 2025, the exemption was expanded to allow relatives of the owner to satisfy the four-week usage requirement, broadening the scope for claiming this exemption [7]. Some property owners have reportedly structured arrangements where extended family members make brief visits to satisfy the technical requirements while the property remains effectively vacant for most of the year.
The subjective nature of determining what constitutes a “genuine holiday home” also creates grey areas that sophisticated property owners can exploit. The Commissioner of State Revenue must consider factors such as location, distance from the owner’s primary residence, and frequency of use, but these assessments are difficult to verify and challenge.
Exploitation of Construction and Renovation Exemptions
Properties under construction or major renovation receive automatic exemptions from VRLT, but only after they have been in that state for more than two years. This has created opportunities for property owners to initiate minimal construction or renovation activities to claim exemption status.
Some property owners have reportedly commenced token renovation projects or obtained building permits for minor works to establish a construction exemption. While the legislation requires genuine construction or renovation activities, the threshold for what constitutes sufficient work to maintain exemption status remains unclear and difficult to police.
The two-year grace period for construction and renovation also creates opportunities for strategic timing. Property owners can plan renovation cycles to coincide with VRLT liability periods, effectively using legitimate improvement activities to avoid tax obligations.
Corporate and Trust Structure Strategies
Sophisticated property investors have increasingly turned to complex ownership structures to minimise VRLT exposure. While these structures must comply with anti-avoidance provisions, they can create opportunities to distribute VRLT liability across multiple entities or take advantage of exemptions available to different types of property owners.
Trust structures, in particular, have become popular vehicles for property investment, as they can provide flexibility in managing beneficial ownership and potentially accessing exemptions that might not be available to individual property owners. The expansion of holiday home exemptions to trusts and corporations from 2025 has further enhanced these opportunities.
Some investors have also explored strategies involving corporate ownership changes that might qualify for change of ownership exemptions, though these must involve genuine transfers of beneficial ownership to be effective.
Enforcement Challenges and Systemic Weaknesses
The widespread avoidance of VRLT reflects deeper structural problems with the tax’s design and implementation. These challenges extend beyond simple non-compliance to reveal fundamental limitations in the government’s ability to monitor and enforce vacancy-based taxation.
The Data Gap Problem
One of the most significant obstacles to effective VRLT enforcement is the absence of reliable, real-time data on property occupancy. Unlike other taxes that can be verified through financial records or third-party reporting, vacancy status is inherently difficult to monitor and verify objectively.
The State Revenue Office lacks access to utility consumption data, which could provide indicators of occupancy patterns. While some jurisdictions overseas have used electricity and water usage as proxy measures for vacancy, privacy laws and utility company policies in Victoria have prevented the development of such monitoring systems.
Similarly, there is no systematic integration with rental databases, property management systems, or accommodation booking platforms that could provide independent verification of occupancy claims. This data isolation forces the SRO to rely almost entirely on property owner declarations, creating an enforcement environment that favors non-compliance.
Resource Constraints and Audit Limitations
The SRO’s capacity to conduct comprehensive audits of VRLT compliance is severely constrained by resource limitations and the practical challenges of vacancy verification. Unlike financial audits that can be conducted through document review, vacancy audits require physical inspection or surveillance activities that are resource-intensive and legally complex.
The government’s 2024 compliance trial, which targeted apartment towers and helped boost revenue from 1,013 properties in 2023 to 1,779 in 2024, demonstrates the potential impact of focused enforcement efforts [8]. However, this trial covered only a small fraction of potentially liable properties and required significant resource investment that would be difficult to scale across the entire property market.
The expansion of VRLT to cover all of Victoria from 2025 has further stretched enforcement resources, as the SRO must now monitor compliance across regional areas where property inspection and verification are even more challenging and expensive.
Legal and Procedural Complexities
The VRLT legislation’s complexity, with its numerous exemptions and technical requirements, creates additional enforcement challenges. Property owners can exploit ambiguities in the legislation or claim exemptions that are difficult to verify, forcing the SRO into time-consuming investigations that may not yield clear outcomes.
The subjective nature of many exemption criteria, such as “genuine and reasonable efforts” to sell property or determining what constitutes a “genuine holiday home,” creates grey areas that favour property owners in disputes. These ambiguities make it difficult for the SRO to challenge exemption claims confidently, particularly when experienced tax advisors represent property owners.
The penalty regime for non-compliance, while potentially significant, is rarely applied due to the difficulty of proving deliberate non-disclosure. Most non-compliance can be characterised as oversight or misunderstanding rather than deliberate evasion, limiting the SRO’s ability to impose meaningful deterrent penalties.
Industry and Political Responses
The VRLT avoidance phenomenon has generated significant debate among industry stakeholders and political parties, revealing deep divisions about the tax’s effectiveness and appropriateness as a housing policy tool.
Developer and Industry Concerns
The Property Council of Australia has consistently raised concerns about VRLT’s impact on new housing supply, arguing that the tax penalises developers for market conditions beyond their control. Victorian executive director Cath Evans highlighted the complexity of implementation, noting that “the discrepancy between the number of properties estimated to be liable and those actually assessed for the VRLT highlights the complexity of implementing this policy” [9].
Industry representatives argue that the tax creates perverse incentives that may actually reduce housing supply by making development projects less viable. Charter Keck Cramer chief executive Richard Temlett warned that VRLT changes risk “further inflating the already high costs hindering new housing projects,” challenging the assumption that developers are simply “land-banking” for profit [10].
These industry concerns reflect broader tensions between the government’s housing supply objectives and the practical realities of property development and marketing. The three-year exemption for new residential land, while intended to provide reasonable time for sales, may not adequately account for market cycles and economic conditions that can extend sales periods beyond developers’ control.
Political Dynamics and Policy Tensions
The VRLT has become a focal point for broader political debates about housing policy and tax fairness. The Victorian Greens, who negotiated the 2023 expansion of VRLT as part of their agreement with the Labor government, have called for stronger enforcement measures to close avoidance loopholes.
Greens housing spokesperson Gabrielle de Vietri argued that “developers and investors were avoiding the tax, which should be freeing up homes for first home buyers and renters,” calling for the government to “close the loopholes that allow developers and investors to avoid this tax” [11].
However, the government’s response has been more cautious, acknowledging enforcement challenges while defending the tax’s overall objectives. A government spokesperson emphasized that “the tax was designed to encourage more owners to make their homes available for rent or sale,” while criticizing the Greens for blocking other housing initiatives [12].
This political dynamic reflects the complex balancing act required to maintain industry support for housing development while addressing public concerns about vacant properties and housing affordability.
Economic and Social Implications
The widespread avoidance of VRLT has implications that extend far beyond tax revenue, affecting housing market dynamics, policy credibility, and social equity in ways that may undermine the government’s broader housing objectives.
Market Distortion Effects
The selective enforcement of VRLT creates market distortions that may actually exacerbate housing supply problems. Compliant property owners face significant tax burdens that non-compliant owners avoid, creating competitive advantages for those willing to risk non-compliance.
This enforcement inequality can discourage legitimate property investment and development while rewarding tax avoidance behavior. Property owners who follow the rules and pay VRLT may find themselves at a financial disadvantage compared to those who exploit loopholes or simply fail to comply with reporting requirements.
The uncertainty created by inconsistent enforcement also makes it difficult for property investors and developers to make informed decisions about project viability and investment strategies. This uncertainty can contribute to reduced housing supply as investors become more cautious about entering markets where tax obligations are unpredictable.
Policy Credibility and Public Trust
The failure to achieve projected VRLT revenue and compliance targets undermines the credibility of vacancy-based taxation as a housing policy tool. When a significant majority of potentially liable properties avoid taxation, it raises questions about the government’s capacity to implement and enforce complex housing policies effectively.
This credibility gap may affect public support for other housing initiatives and tax reforms, as voters lose confidence in the government’s ability to deliver on policy promises. The perception that wealthy property owners can easily avoid tax obligations while ordinary homeowners face increasing cost pressures may also contribute to broader concerns about tax system fairness.
Housing Supply and Affordability Impacts
The limited effectiveness of VRLT in bringing vacant properties to market means that the housing supply benefits anticipated from the policy have not materialized to the expected extent. With only 1,779 properties assessed in 2024 compared to an estimated 5,000 liable properties, the majority of vacant homes remain off the market.
This enforcement failure perpetuates housing supply constraints at a time when Victoria faces acute housing shortages and affordability pressures. Every vacant property that remains empty due to VRLT avoidance represents a missed opportunity to house Victorian families and reduce pressure on the rental market.
The concentration of vacant properties in inner and middle Melbourne suburbs, where housing demand is highest, means that VRLT avoidance has particularly significant impacts on housing accessibility for workers and families who need to live close to employment centers and services.
Looking Forward: Reform Options and Policy Alternatives
The widespread avoidance of VRLT raises important questions about the future of vacancy-based taxation in Victoria and the need for more effective approaches to addressing housing supply constraints.
Potential Reform Measures
Several reform options could strengthen VRLT enforcement and reduce avoidance opportunities. These include developing better data collection and verification systems, simplifying exemption criteria to reduce ambiguity, and increasing audit and compliance activities.
The integration of utility data, rental platform information, and other occupancy indicators could provide the SRO with independent means of verifying vacancy claims. However, such reforms would require significant investment in data systems and may face privacy and legal challenges that could limit their effectiveness.
Simplifying the exemption framework could reduce opportunities for avoidance while maintaining protection for legitimate property activities. This might involve replacing subjective criteria with objective standards and reducing the number of exemption categories to improve clarity and enforceability.
Alternative Policy Approaches
The enforcement challenges facing VRLT highlight the potential advantages of alternative approaches to addressing housing supply constraints. Grattan Institute economist Brendan Coates argued that “large-scale rezoning of land for higher-density residential purposes, such as the state government’s new townhouse code, is a far more effective way to boost housing supply” than vacancy-based taxation [13].
Supply-side reforms that increase development opportunities and reduce regulatory barriers may prove more effective than demand-side interventions that attempt to force existing properties into use. These approaches avoid the enforcement challenges inherent in vacancy-based taxation while potentially delivering larger increases in housing supply.
Other jurisdictions have experimented with different approaches to vacant property taxation, including higher rates for foreign owners, speculation taxes on rapid property turnover, and development levies that fund affordable housing. These alternatives may offer lessons for Victorian policymakers seeking more effective tools for addressing housing affordability.
Conclusion
The Victorian experience with VRLT reveals the significant challenges involved in implementing and enforcing vacancy-based taxation as a housing policy tool. With only 35.6% of estimated liable properties actually assessed for the tax in 2024, the policy has fallen well short of its revenue and housing supply objectives.
The sophisticated avoidance strategies employed by property owners, combined with fundamental enforcement limitations, have created a system where compliance is largely voluntary and non-compliance carries minimal risk. This outcome undermines both the policy’s effectiveness and its credibility as a solution to Victoria’s housing challenges.
The progressive rate structure introduced in 2025, escalating from 1% to 3% of capital improved value over consecutive years of vacancy, represents a significant strengthening of the tax’s financial incentives. However, without corresponding improvements in enforcement capability and compliance monitoring, these higher rates may simply increase the rewards for successful avoidance rather than bringing more properties to market.
The VRLT experience demonstrates the importance of considering enforcement feasibility and compliance mechanisms when designing complex tax policies. While the policy’s objectives of increasing housing supply and improving affordability remain valid and important, the practical challenges of vacancy-based taxation suggest that alternative approaches may be more effective in achieving these goals.
As Victoria continues to grapple with housing affordability and supply challenges, policymakers must carefully evaluate whether the resources devoted to VRLT enforcement might be better directed toward supply-side reforms that address the fundamental drivers of housing scarcity. The gap between policy intention and implementation reality serves as a valuable lesson for future housing policy development and the importance of designing policies that can be effectively enforced and administered.
The ongoing expansion of VRLT to cover undeveloped land from 2026 will provide another test of the government’s capacity to implement vacancy-based taxation effectively. However, without addressing the fundamental enforcement challenges that have limited the tax’s impact to date, this expansion may simply extend the current compliance problems to a broader range of properties and property owners.
Ultimately, the VRLT avoidance phenomenon reflects broader challenges in contemporary tax administration and the difficulty of regulating complex property markets through taxation mechanisms. While the policy’s goals remain important, its implementation experience suggests that more fundamental reforms to housing supply and development processes may be necessary to address Victoria’s housing challenges effectively.
References
[1] White, D. (2025, June 23). How thousands of Melbourne’s empty homes are dodging millions in tax. The Age. Retrieved from https://www.theage.com.au/national/victoria/how-thousands-of-melbourne-s-empty-homes-are-dodging-millions-in-tax-20250618-p5m8f1.html
[2] State Revenue Office Victoria. (2024, August 29). Vacant residential land tax — frequently asked questions. Retrieved from https://www.sro.vic.gov.au/vacant-residential-land-tax/frequently-asked-questions
[3] State Revenue Office Victoria. (2024, August 29). Vacant residential land tax — frequently asked questions. Retrieved from https://www.sro.vic.gov.au/vacant-residential-land-tax/frequently-asked-questions
[4] White, D. (2025, June 23). How thousands of Melbourne’s empty homes are dodging millions in tax. The Age. Retrieved from https://www.theage.com.au/national/victoria/how-thousands-of-melbourne-s-empty-homes-are-dodging-millions-in-tax-20250618-p5m8f1.html
[5] State Revenue Office Victoria. (2024, August 29). Exemptions from vacant residential land tax. Retrieved from https://www.sro.vic.gov.au/vacant-residential-land-tax/exemptions
[6] State Revenue Office Victoria. (2024, August 29). Exemptions from vacant residential land tax. Retrieved from https://www.sro.vic.gov.au/vacant-residential-land-tax/exemptions
[7] State Revenue Office Victoria. (2024, August 29). Exemptions from vacant residential land tax. Retrieved from https://www.sro.vic.gov.au/vacant-residential-land-tax/exemptions
[8] White, D. (2025, June 23). How thousands of Melbourne’s empty homes are dodging millions in tax. The Age. Retrieved from https://www.theage.com.au/national/victoria/how-thousands-of-melbourne-s-empty-homes-are-dodging-millions-in-tax-20250618-p5m8f1.html
[9] White, D. (2025, June 23). How thousands of Melbourne’s empty homes are dodging millions in tax. The Age. Retrieved from https://www.theage.com.au/national/victoria/how-thousands-of-melbourne-s-empty-homes-are-dodging-millions-in-tax-20250618-p5m8f1.html
[10] White, D. (2025, June 23). How thousands of Melbourne’s empty homes are dodging millions in tax. The Age. Retrieved from https://www.theage.com.au/national/victoria/how-thousands-of-melbourne-s-empty-homes-are-dodging-millions-in-tax-20250618-p5m8f1.html
[11] White, D. (2025, June 23). How thousands of Melbourne’s empty homes are dodging millions in tax. The Age. Retrieved from https://www.theage.com.au/national/victoria/how-thousands-of-melbourne-s-empty-homes-are-dodging-millions-in-tax-20250618-p5m8f1.html
[12] White, D. (2025, June 23). How thousands of Melbourne’s empty homes are dodging millions in tax. The Age. Retrieved from https://www.theage.com.au/national/victoria/how-thousands-of-melbourne-s-empty-homes-are-dodging-millions-in-tax-20250618-p5m8f1.html
[13] White, D. (2025, June 23). How thousands of Melbourne’s empty homes are dodging millions in tax. The Age. Retrieved from https://www.theage.com.au/national/victoria/how-thousands-of-melbourne-s-empty-homes-are-dodging-millions-in-tax-20250618-p5m8f1.html